The VIX Trade I Would Make Right Now

Mark Sebastian

The Option Pit VIX Traffic Light Is Green: Volatility is likely to go up or stay high.

Hey Traders,

The S&P 500 (Ticker: SPX) closed at a one-year low, and firmly below 4000 on Wednesday:

But … the VIX was actually down.

Why?

Part of the reason is the price of VIX.

A 33 VIX implies movement in the S&P 500 of 2% a day …

We did not get that on Wednesday.

But…

That does not mean options are overpriced.

We have seen a TON of movement in the SPX over the last 10 and 20 days, relative to the current price of options:

So the interpretation of yesterday’s VIX move should be that things are going to calm down, relative to the last few weeks …

Except:

VVIX (VIX of VIX) might be starting to break out.

If VVIX is going to go up, then it is going to take the VIX with it.

Part of the reason VVIX is breaking out is that we actually saw VIX call buyers on Wednesday:

Seven of the top 10 VIX trades were calls!

This is the first time in a while that has been the case.

I think things are coming to a head …

I would be long the VIX 35-45 call spread, hedged with the 25 puts.

Your Only Option,

Mark Sebastian

VIX Edge

Mark Sebastian

Mark Sebastian is a former member of both the Chicago Board Options Exchange (CBOE) and the American Stock Exchange (AMEX), where he spent years mastering the art of options trading in the most competitive environment imaginable. As Chief Investment Officer at the hedge fund Karman Line Capital, Mark manages sophisticated options strategies for institutional clients. He is the author of two highly regarded books on options trading: ‘The Option Traders Hedge Fund’ and ‘Trading Options for Edge.’ Mark is a frequent guest on major financial networks including CNBC, Fox Business News, Bloomberg, and First Business News, where he provides expert commentary on market volatility and options strategies.

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